Compliances for Foreign Companies
Under New Companies Act, 2013

Deepak Dahiya highlights the compliances applicable under the New Act for foreign companies having a presence in India

A foreign company planning to set up business operations in India has two options to do so under the laws in force in the country. It can establish itself as an Indian company which would require such companies to comply with the provisions of the Companies Act, 2013 (‘New Act’) in general, and other compliances under the appropriate laws. A foreign company would thus have an alternative to operate either through joint venture with an Indian partner or as a wholly owned subsidiary. The other option for a foreign company is to run its business in India either through a Liaison or Project or Branch office. In such a scenario, only a part of the New Act relevant to foreign companies and other compliances under appropriate laws would apply.

However, the enactment of the New Act has changed the required compliances. The definition of such foreign companies’ stands enlarged as the New Act also includes within its ambit companies which are not physically present in India, but are operating through the virtual world or conduct business in any other manner.

The present article focusses on the compliances applicable under the New Act to foreign companies having a presence in India and in which more than 50 percent of the paid-up equity shared capital1 is held by Indian citizens or Indian companies or both (‘Foreign Companies’).

Compliances Applicable to Foreign Companies

The compliances for such Foreign Companies under the Companies Act, 1956 (‘Old Act’) were mostly understated since such foreign companies owned by Indian citizens or body corporates with a place of business in India were negligible. The compliances required to be met by a Foreign Company under the New Act are as mentioned below:

Documents to be Submitted

Every Foreign Company carrying on business in India needs to apply for registration before the appropriate Registrar of Companies and must file the following documents for registration. The following formalities existed even under the Old Act.

• A certified copy of the charter, statutes or memorandum and articles of the Foreign Company or other instruments constituting or defining the constitution of the Foreign Company with a certified translation thereof in the English language, if required;

• The full address of the registered or principal office of the Foreign Company;

• A list of the directors and secretary of the Foreign Company containing such particulars as may be prescribed in Rule 3 of the Companies (Registration of Foreign Companies) Rules, 2014;

• The name(s) and address(es) of one or more persons resident in India authorised to accept on behalf of the Foreign Company service of process and any notices or other documents required to be served on the aforesaid company;

• The full address of the office of the Foreign Company in India, which is deemed to be its principal place of business in the country.

Additional Action

The New Act, however, provides for additional action for such companies seeking registration to operate in India:

• Particulars of opening and closing of a place of business in India on earlier occasion(s);

• Declaration that none of the directors of the Foreign Company or the authorised representative in India has ever been convicted or debarred from formation of companies and management in India or abroad;

• Any other information as may be prescribed.

Display of the Name

Everything remains same as required under the Old Act except that the requirement of declaring the name of the country in which the Foreign Company is incorporated in its prospectus is done away with.

Service of Notice

Any process, notice, or other document shall be deemed to be sufficiently served on the Foreign Company, if the same is addressed to any person whose name is in the record of the Registrar of Companies. The service is completed by delivering at the address or sending by post or electronic mode to the address.

Books of Accounts of the Foreign Company

The Foreign Company is required to maintain an account and make a balance sheet and profit and loss account in such forms and containing such particulars and attachment as may be prescribed. The Foreign Company is required to deliver these documents to the Registrar of Companies in every calendar year. Additionally, it is required to submit a copy of a list (prescribed form) of all places of business established by the company in India at the date in reference to the balance sheet.

Every Foreign Company is required

to maintain at its principal place of business Book of Accounts referred in Section 128 of the New Act dealing with the subject. The Foreign Company is required to maintain the state of affairs of the company with respect to monies received and spent, sales and purchases made, and assets and liabilities, in the course of or in relation to its business in India.

Registration of Prospectus

No person shall issue, circulate or distribute in India any prospectus offering for subscription in securities of a company incorporated or to be incorporated outside India, regardless of whether the company has or has not been established, or when formed will or will not establish a place of business in India, unless the same is dated and signed and contain the following particulars:

• Instrument constituting or defining the constitution of the Foreign Company and the address where this can be inspected;

• Enactment or provision under which the incorporation of the Foreign Company was effected and the address where this can be inspected;

• Date and country of incorporation of the Foreign Company;

• Place of business in India of the Foreign Company.

Miscellaneous Compliances

Section 71 of the New Act provides the governing provision pertaining to debentures issued by the Foreign Company. Every Foreign Company is required to prepare annual returns at the close of the financial year, every year. Section 92 of the New Act with relevant modifications, exceptions and adaptations as prescribed under the Rules would apply for preparation of the annual return of the Foreign Company. Chapter VI of the New Act governs the charge on the properties created or acquired by the Foreign Companies. Chapter XX of the New Act governs the closure of the business of the Foreign Company.

Punishment for Contravention

Contravention of the provision of compliance by the Foreign Company shall now be punishable with fine which shall not be less than `1 lakh, but which may extend to `3 lakh and in the case of a continuing offence, with an additional fine which may extend to `50,000 every day after the first day, during which the contravention continues. Every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than `25,000, but which may extend to `5 lakh, or with both.

The only concern is that in this attempt to regulate, India must not earn the reputation as a business-unfriendly destination.

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